Investors care more about profits than the unemployment rate

Nov. 18, 2010 12:00 AM

Question: It seems that few new jobs are being created. So I'm wondering if this will eventually send the stock market into another nose dive?

Answer: Ultimately, stock-market investors care the most about corporate profits, which have rebounded sharply in recent quarters. Coming out of a recession, companies are slow to hire more workers. As business picks up, corporations can boost profits by simply making better use of the resources they already have.

Job creation does eventually pick up in an economic rebound, but new jobs generally lag behind in a recovery.

Last month, more than 300,000 new jobs were created, the most in four years.

I know people who have been frustrated by long-term unemployment, and I'm sympathetic to their plight. Unfortunately for such workers, the stock market only cares about corporate profits, which can be boosted through keeping labor costs down.

Q: I have less than $20,000 put away for my retirement. I am 50. Should I invest more aggressively since time is running out for me to work and save more? Is there any chance of me making up for lost time?

A: Absolutely! First, you probably have more for your retirement than just the $20,000. If you worked at least 10 years, you may be eligible for monthly Social Security benefits in retirement.

Most people's ability to save money is hampered by their spending. Examine how you currently spend your income -get out your checkbook register, credit-card statement and anything else that helps document where your money goes. Don't forget to peruse your federal and state income-tax returns to see how much you expend for income taxes. Start to identify those areas in your budget where you would be most comfortable making cutbacks.

In addition to stepping up your rate of savings, another way to make up for lost time is to be aggressive with your investments - in other words, put a larger portion to work in stocks. Should you follow this path, don't trade in an out in an attempt to time the markets. Buy and hold and keep adding regularly to your holdings.

One simple way to enhance your investment returns is to invest in a more tax-favored way. Be sure to take advantage of tax-sheltered retirement savings plans for which you are eligible. If your employer doesn't offer any, find a new employer who does.

You should obtain some of the helpful retirement planning worksheets from T. Rowe Price, or visit T. Rowe Price's website (troweprice.com) or Vanguard's website (vanguard .com).

Crunch some numbers to establish a monthly savings amount needed to reach a particular goal such as retiring by age 65 or 70.

Eric Tyson is author of "Investing for Dummies." and "Personal Finance for Dummies." Write him at eric@erictyson.com.